There will be a separate partition on the hard drive containing the full Windows XP file set. The operating system will automatically go to this location whenever it needs any files - drivers for instance - and will work with the partition in the same way that it would work with the CD if you had one.
The only scenario in which you would be in real trouble is if the hard drive was to fail completely - then you would have no access to the partition. For this reason, Microsoft accept that you might want to make a backup of the files, so you could reinstall on a new drive if it was ever necessary.
It's worth pointing out that your computer is running on what's called an OEM copy of Windows XP, which is only licenced for use on that particular machine. You are not licenced to install it on another computer - when that machine dies, your licence dies with it.